2014/11/25

Free Market Economy in Afghanistan

 

By:  Rohullah Sharifi

 

Abstract

T

he free market economy all of a sudden emerged during 2001.  The phenomenon has been differently interpreted by the investors and the people as exploiter and exploited.

Afghanistan adapted free market economy after 2001 political revolutionary change.  The government political economy towards the adoption of free market as part of the reform strategy. The pressure by international organizations like the World Bank, IMF and the donors towards free market economy, privatization and liberalization and joining globalization.

The Afghan weak economy, heavily dependent on foreign aid money and opium revenue. 

“The limited analysis of Afghanistan’s political economy has not sufficiently addressed informal sector issues. The reality on the ground is that participation in the market is not open to all, benefits are spread unevenly among participants, and the country’s market structures in their current state undermine governance and state-building. These factors have the potential to seriously impede both the democratic and economic development of Afghanistan”. (By Sarah Siegel, Posted on 15 February, 2007, Article Trading in Power: The Politics of “Free” Markets in Afghanistan)

The three decades of civil war in the country that resulted in total destruction of infrastructure and institutions.  Agriculture once had been the backbone of the economy for centuries, but replaced by poppy cultivation and opium economy.  The rising of narcotics economy during the Taliban era and wealth accumulation by few and rest fight for subsistence and survival.

The free market economy in Afghanistan has many facet:

The weak interim and transitional government during the years 2001 – 2004 fought for survival and sustenance.  The government could not formulate sufficient policies to meet the need. 

“The fact is that the government that is supposed to act as a regulator and supporter in a free market system has not been able to provide the required conducive business environment for businessmen and entrepreneurs to invest with peace of mind and certain that their investments will be safe both from armed groups and corrupt government bureaucrats. Corruption in the government has been the complaint of every businessman who wanted to invest in the country and create jobs and employment”. (By Mehdi Rezaie, October 18, 2012, Article Free Market in Afghanistan, Is It Working?  )

The existence of command economy and dependence on USSR for economic assistance for decades.  Then, the emergence of war economy during the Mujahidin era and reign of few warlords as estates mainly in four zones as North, South, West and East regions.  The revenue never reached the central government and remained as private property of warlords that kept captive the area and people and continue the war.  “Afghanistan is experiencing economic growth, but that growth does not benefit all citizens. Instead, it benefits only the wealthy and connected, leaving the majority of citizens disenfranchised. State institutions are currently unable to regulate the economy and ensure that all people have the opportunity to participate” [CIPE’s recently published Economic Reform Feature Service article, “Trading in Power: The Politics of ‘Free’ Markets in Afghanistan”, addresses a pressing problem affecting Afghanistan’s political and economic development. According to the authors, Sarah Lister and Adam Pain of the Afghanistan Research and Evaluation Unit], (by Sarah Siegel, Posted on 15 February, 2007. Trading in Power: The Politics of “Free” Markets in Afghanistan)

The Taliban regime largest revenue portion was coming from opium trading, loots, and import and terror sponsors.  They could not institutionalize sustainable economy in the country.  The people fought for subsistence and survival.

The sudden change of Afghan Political Economic during the early days of interim government and westernized influenced Afghan thinkers role in free market economy adoption.  Their lack of understand of existed socioeconomic situation of the country.  The broken economy and absence of law and order, and policies to fill the gap and establish proper control over the free market functions.  “Dr Syed Mohammad Mangal, chairman of Kabul University‘s Economics Department, favors a command economy with the government is firmly in control of every sector. Professor Mangal stressed government control over the economy, which would slip into chaos if the nascent private sector is given a crucial role at this point in time. Afghanistan‘s economy was still in a rudimentary phase, he reiterated, where a free-market system could not yield the desired results. (By Aleksandr Shkolnikov,7 February, 2006. Article: Debates on Free Markets in Afghanistan)

The emergence of artificial economy that is heavily dependent on the international aid, and imports revenue.  The government priority to encourage import to generate adequate revenue, but failed to foreseen its future circumstances for the economic growth.  Especially, after the departure of international forces and reduction in the aid quantity. 

“There are four major revenue streams which support the economy in Afghanistan today: the drug trade, contracts and grants, terrorism and the local market economy. The drug trade is also a major source of funding for the insurgency. The contracting sector has been rebuilding infrastructure and purchasing power in Afghanistan, but it lacks sustainability and seems to have corruption in its DNA. It also competes for the best personnel with the market economy as it pays far higher salaries”.  (Hon. Don Ritter, Sc. D. President and CEO, the Afghan American Chamber of Commerce (AACC).  Building the Afghan Market Economy” Presented at the Iraq and Afghanistan Reconstruction Summit Istanbul, Turkey, June 3, 2010 by)

The saving and investment opportunities never encouraged as alternative to prevent the waste of capital on luxury goods and inferior products imported.  The government allowed import of expired vehicles to the country that wasted millions of dollar and resulted in catastrophic pollution of the environment.  There are many heart patients, breathing problem, cancer and many other disease in the country.

The business community’s influence over the political leadership led to policy formulation that mostly suited the businessmen and traders and loss to general public.  “Another economist, Haji Hafiz Khan believed the system would eventually concentrate all economic benefits in a specific group of moneyed people. He suggested the government should commission a survey on which system could be most beneficial for the Afghans in the obtaining conditions”. (by Aleksandr Shkolnikov, Posted on 7 February, 2006.  Debates on Free Markets in Afghanistan)

The businessmen, traders’ general perception of the free market economy is to rob the people.  They imported inferior quality products that most of them are really harmful to the health of citizens e.g. cooking oil, flour, dairy products, children food items, medicine etc… 

At the same time, the import of inferior and subsidized products by neighboring countries led to collapse of many young companies in the country that could not compete with cheat products.  “There used to be 420 such small factories in Herat's industrial park. Not any longer.  However in 2009, Khorram, an Iranian competitor, brought down its price to 25 Afghani – and Gulchin to its knees. Now that the Afghan competitor is gone, Khorram has raised the price to 40 Afghani, above the original level.  Many Afghan businesses cannot compete with cheap imports from neighboring countries.  Not too long ago, DAMA used to be one of Herat’s biggest employers. About 500 staff worked for the food producer, baking cakes and cookies for the Afghan national market. Today the factory lies idle: just a few guards are left, patrolling behind the high gates that used to fling open for dozens of trucks a day.  When DAMA started production, the Iranians reduced their prices.  Iranian competitors from across the border, just 100 kilometers away”.  (by Mohayudin Noori , Herat, 13.5.2011.  Article Iran's imports to Afghanistan have increased by 20 per cent)

The current economic situation is not suitable for laissez faire political economy.  The country is century behind and lacks institutions and required capital to operate. 

The government failed to adopt clear stance and to formulate laws for proper market control and corrective measures.  The systematic corruption in governmental organizations that lets the entrance of inferior products to the country.  Therefore, we clearly see that imposition of free trade and neo-liberal economics on Afghanistan has been a near total failure. What are the causes of this failure over the past ten years? Lack of security and stability in many parts of the country is one reason but it is not the only one.  Even in many areas that have been relatively safe like the western and northern regions, growth and development have been limited.  The fact is that the government that is supposed to act as a regulator and supporter in a free market system has not been able to provide the required conducive business environment for Afghan businessmen and entrepreneurs to invest with peace of mind and certain that their investments will be safe both from armed groups and corrupt government bureaucrats. Corruption in the government has been the complaint of every businessman who wanted to invest in the country and create jobs and employment.  On the other hand, the government has been unable to provide and back up the prospective entrepreneurs with proper laws and regulations that can protect them and their investments and encourage more investment. The existing rules are not transparent, are obsolete and old, are complex and cumbersome and discourage businessmen and interested foreign investors and financiers from investing inside the country.

Conclusions

T

he free market economy is proved disaster for the economy.  The reduction in the international aid money to Afghanistan resulted in thousands of unemployment of qualified professionals.  This badly affected the Purchasing Power Parity (PPP) of the people.

The capital fled the country and contributed towards economic development of UAE, Turkey, Pakistan, India, Tajikistan and other countries.  The businessmen accept high risk and invest on high profit ventures and quick yielding investments.  The worst off are the general people and especially the civil servants, middle class and poor people that have to pay the high cost.

The government failure in the past 13 years to formulate sustainable economic growth and gradual reduction and dependence on foreign aid.  The government could not utilize its own revenue sources.

Recommendations

T

he new elected government must formulate solid strategies on trade policies.  The amendment and formulation of new laws to control the free market functions.  The government economic polity must be based on mixed economy.  The need of the day is government protectionist policy to prevent dumping of the Afghan economy by neighboring countries.

The import quota of similar products from outside that currently the domestic producers are producing.  The US and UK, the free market economy and capitalist system defenders are practicing protectionism to support its home industries. 

The government must encourage saving and actively support Import Substitution Industrialization in the country.  Otherwise, the dependence on the imported goods and budget deficit will remain high and affect the economy in the future.  Meanwhile, the government has to face blackmailing schemes of neighboring countries e.g. Iran control of fuel and Pakistan barriers to transit of goods to reach Afghanistan via Karachi port.

There is need to establish unified import quality control cell and equipped with ICT technology & machinery, expert human resources.  The inferior quality products not only damage our economy, accompany with many physical defection and huge burden on the country’s future.

References

By Sarah Siegel, Posted on 15 February, 2007

By Mehdi Rezaie, October 18, 2012

By Sarah Siegel, Posted on 15 February, 2007

By Aleksandr Shkolnikov7 February, 2006)

Hon. Don Ritter, Sc. D. President and CEO, the Afghan American Chamber of Commerce (AACC)

By Aleksandr Shkolnikov7 February, 2006

By Mohayudin Noori , Herat, 13.5.2011

By Mehdi Rezaie, October 18, 2012

 

 

1 - Critical review of Afghan Presidential Election 2014

2 - Free Market Economy in Afghanistan

        

 
 

admin@vatandar.at

 
 مدیر مسوول : انجنیر هما یوسفی
صاحب امتیاز : انجنیرنجیب یوسفی
کليه ی حقوق بر اساس قوانين کپی رايت  محفوظ و متعلق به «وطندار» می باشد